Examples of Sole Sourcing

Because the concept is already understandable, putting examples in this article should give you a much clearer picture of how sole sourcing works. 

In short, it’s all about buying one particular brand or buying from one store or company only for your procurement supplies:

• If your company needs to buy good laptops and you have all decided to purchase Sony laptops, then obviously Sony is your single-sourcing.
• Toshiba is one of the most popular brands n the world, and Toshiba Electronics has decided to go with Asyst Technologies Inc as its single product sourcing for fab production in 300mm fab.

The Advantages and Disadvantages of Sole Sourcing

Like almost all basics and terms in procurement, sole sourcing also has its advantages and disadvantages. Let’s first start with the advantages.

One of the best things about sole sourcing is that because you only get from one supplier or source, there is a bigger chance of improving supplier relations between your company and the supplier themselves. Getting more and more supplies meant more business for your supplier and also, bigger discounts as long as you keep buying supplies from that one source.

Another advantage is that you can personally check each supply and make sure that they are each supply that comes in is often accounted for. In case of issues, you can immediately get in touch with the supplier and have them fix the issue.

Now we come to the disadvantages. First off, a lot of suppliers right now have closed because of the COVID 19 pandemic. Some manufacturers are simply having a hard time answering all demands because basically, the companies that supply materials have closed down due to the pandemic. While 2022 remains a hopeful year for procurement managers, the problem with dwindling supplies and sources is a disadvantage that procurement managers might want to take notice of.

How to do Sole Sourcing for 2023

Sole sourcing may not be the hottest trend right now when it comes to procurement, but nevertheless, it remains the first option for small business managers who want to grow their company.

As we think about the global supply chain from a 30,000ft view, pre and post-pandemic, businesses get superior pricing by routing higher volume orders to a single vendor. The concept of economies of scale has not and will not change. For this reason, timing your buys and meticulously planning quantities will always be an effective strategy to drive margins. That said, when building longstanding partnerships with suppliers, how can you be sure that the grass isn’t greener elsewhere? According to Forbes, only 31% of companies have developed alternate supply sources for 70% or more of their Tier 1 suppliers.

You may be satisfied with your current margins and suppliers who drop the unit price by 1-2% each year. However, as our global economy continues to face disruptions, new suppliers are popping up to take innovative approaches to produce the products you sell. If you stick with the same suppliers for decades, how do you know there aren’t alternative suppliers making the same quality product faster and at lower costs? 

Transparent annual cost/benefit analysis is the best way to optimize single-sourcing post-pandemic. Whether your business has been purchasing from the same vendor for one year or 100 years, at the end of each buying season, it is critical to conduct two types of evaluations:

• Ways to drive superior margins/product quality with existing suppliers
• Ways to drive superior margins/product quality with new suppliers around the globe

When conducting these evaluations, it is essential to share your ACTUAL target prices with new suppliers, approximate current margins and costs, and weaknesses with your existing supply chain partnership. While doing this, simultaneously request that your active vendors evaluate their processes and pricing to determine if their offering can be more competitive. If you are displeased with the pricing, turnaround times, and capacity your current vendors offer, be forthcoming. 

Good vendor relationships thrive from honesty, and if you find better pricing from other partners, share this with your existing suppliers. Transparency and being proactive about seeking annual improved efficiency even when sticking with your current vendor will enable you to optimize your single-sourcing strategy.